Alliance Trust pours scorn on Laxey’s latest attack on dividend

In a letter addressed to the trust’s outgoing chairman Lesley Knox, Laxey said Alliance should take advantage of tax changes which would enable some investment trusts to pay realised capital gains as dividends for the first time.

But in a strongly-worded response to a letter sent by the Isle of Man-based hedge fund, the trust said suggestions by Laxey made “Greek finances look prudent”.

Laxey, which has waged a campaign dating back to 2010 to try and force Alliance to boost shareholder value, is upping its pressure on the trust to improve performance ahead of its annual general meeting next month.

Earlier this month, it put forward a resolution to fellow shareholders demanding the trust consider outsourcing management of its £2.9 billion portfolio of assets, and criticising the performance of Alliance as “completely unacceptable”.

In the letter signed by Laxey director Michael Haxby, the hedge fund said tax changes to be implemented in April would give trusts more flexibility and enable them to pay out gains as dividends.

“This could help all investment trusts but especially trusts like Alliance which have consistently traded at wider discounts than their peer group.”

Laxey said Alliance had generated £116 million of gains on sales during the 11 months to 31 December and said if the company distributed all its gains and earnings per share, investors could receive a dividend of as much as 28p a share, more than triple the current dividend.

In its response yesterday Alliance Trust pointed out it had already hiked its dividend by 7 per cent last year, the largest annual rise in two decades and the 45th consecutive dividend increase.

Last year Alliance defeated a controversial shareholder resolution put forward by Laxey to set up an automatic buyback policy, which would have been triggered when a discount of its shares to net asset value fell below 10 per cent.

Alliance has already spent almost £250m buying back 67.7 million shares – more than 10 per cent of its stock – to try and narrow the discount, but the hedge fund has continued to criticise the policy as ineffective.

At 31 December, Alliance had narrowed the discount to 15.5 per cent from 17.1 per cent 11 months earlier, although this has subsequently widened to more than 16 per cent.

Although many investment trusts trade at a discount to net asset value, few are as wide as Alliance.

In a note, analysts from Oriel said they believed recent proposals by Laxey did not have merit and described restructuring of dividend pay-outs as only “smoke and mirrors”.

Shares in Alliance Trust closed down 4p at 365.5p.